Directors remuneration report. Dear shareholder. Linking remuneration to performance pay outcomes for Pay approach for 2016

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1 Directors remuneration report since IPO and RoTE performance in 2013 and Since November 2012, grants under the LTIP have been made approximately every six months. As disclosed last year, the Group achieved an average RoTE of 16.4% over the two-year performance period in 2013 and 2014 which resulted in 82% of the maximum potential vesting of the RoTE element, which comprises 60% of the total award. A strong share price performance in the three years from Admission, together with dividend payments during the period, resulted in a TSR of 135.1% for the three-year TSR performance period and positioned the Group above the upper quintile compared to companies in the FTSE 350 (excluding investment trusts). This resulted in 100% of the maximum potential vesting under the TSR element, which comprises 40% of the total award. Priscilla Vacassin Chair of the Remuneration Committee Dear shareholder As Chair of the Remuneration Committee (the Committee ) I am pleased to introduce our report on Directors remuneration for the 2015 financial year. We have set out this report in the following sections: Section Pages Executive remuneration snapshot summarising the remuneration arrangements for Executive Directors 72 to 73 Annual report on remuneration covering how the Group will implement its remuneration policy in 2016, and detailing pay outcomes for to 85 Approved policy report 86 to 95 Linking remuneration to performance pay outcomes for 2015 As highlighted in the Board Chairman s letter on pages 10 to 11, 2015 has marked another good performance year for the Group with operating profit from ongoing operations ahead of target, despite higher than normal claims costs from major weather events. The incentive outcomes for our Executive Directors as set out in the annual report on remuneration reflect this level of performance. We base bonuses under the AIP on performance against key financial, strategic and personal measures. We awarded bonuses of 83% of the maximum to the Chief Executive Officer and 86% of the maximum to the Chief Financial Officer for This reflects achievement of operating profit from ongoing operations ahead of the target set under the AIP, strong progress made on customer experience metrics, as evidenced by improved Net Promoter Scores in Personal Lines and highlighted in the Group highlights section of the Annual Report on page 2, and achievement against personal objectives. We have provided enhanced disclosure this year relating to the AIP outcome for You can find this on page 78. November 2015 marked the vesting of the inaugural awards under the Direct Line Group LTIP. These LTIP awards were granted shortly following the IPO. They were subject to total shareholder return ( TSR ) performance over the three years Overall, 89.2% of the total award vested in November 2015, which is a good level of achievement and is reflective of the business performance and returns to shareholders over the same period. Awards under the LTIP granted in March and August 2013 are due to vest during The RoTE performance period for these awards ended on 31 December 2015 and, subject to the Committee s satisfaction that the financial and risk underpins have been met at the end of the vesting period, awards under the RoTE element are due to vest at 94% of the maximum potential, again reflecting the returns delivered to shareholders. We have included these vesting outcomes in the single remuneration figure for both Executive Directors, details of which you can find on page 77. Consistent with the regulations, the TSR element of the awards due to vest during 2016 will be reported separately next year. Pay approach for 2016 Our remuneration policy has worked well since its approval by shareholders at the 2014 AGM and is still aligned with our key strategic priorities. As such, we will not change the approved policy this year. However, we intend to review this in 2016 and we will propose a policy for shareholders to approve at the 2017 AGM. Here are the highlights of our approach to pay for the Executive Directors in 2016: The salaries of both Executive Directors will increase by 2.5% in April 2016, a lower increase compared to the average increase to employees across the Group generally Our overall approach to measuring performance under the AIP in 2016 will be broadly similar to our approach in 2014 and We will continue measuring performance using financial, strategic and personal targets and the Committee will also use its broader judgement to carefully assess payouts. From 2016, to better align AIP outcomes with shareholders experience, we will assess financial performance using profit before tax, as opposed to ongoing operating profit. Consequently, we will remove the specific allocation of other financial measures not included in the definition of ongoing operating profit Direct Line Group Annual Report & Accounts 2015

2 We continue to build on the focus on customer measures and will be increasing the allocated AIP weighting for this element from 20% to 25% to reflect this. At the same time, we will increase the range of the specific customer measures taken into account in order to better reflect the focus of the business in the upcoming year We are not proposing to change the performance conditions for 2016 awards under the LTIP. The Committee has considered the current targets, and has determined that the levels of TSR performance (upper quintile) and RoTE performance required for full vesting, as increased in 2015, remain stretching Separately to the executive share plans, we believe it is important for all our employees to have the opportunity to become shareholders in the Company. We run a Buy-As-You- Earn Share Incentive Plan (the SIP ) which allows employees to receive one matching share for every two shares they purchase. In addition, to recognise the continued contribution of our employees to the success of our business, we will be granting a further free share award of around 250 to each eligible employee during March This award will be the third offer of free shares to employees since the IPO. Strategic report Governance Financial statements Voting on the annual remuneration report As we are not making any changes to our policy, the policy report will not be put to shareholders until the 2017 AGM. Therefore, the annual report on remuneration will be the only report that we put to an advisory shareholder vote at the AGM on 12 May I hope you find this report informative and I welcome any comments you may have. Finally, on a personal note, this will be my last report as Chair of the Committee as I step down from the Board on 1 March. I hope that you will agree that the work of the Committee, which I have chaired since IPO, has struck an appropriate balance and served well the interests of shareholders. I know that my successor, Clare Thompson, will continue to do so. Priscilla Vacassin Chair of the Remuneration Committee

3 Directors remuneration report continued Executive remuneration snapshot The information in this section relates to the Chief Executive Officer ( CEO ) and the Chief Financial Officer ( CFO ). Implementing the remuneration policy in 2016 Key elements Base salary AIP LTIP Key operation features (For more information, see the policy report on pages 86 to 95) Implementation in 2016 Reviewed annually with any increases taking effect on 1 April The Committee considers all factors including market data Maximum opportunity level is 175% of salary for the CEO and 150% for the CFO 40% of the award is deferred into shares, typically vesting after three years At least 50% of bonus is based on financial measures. The Committee considers various non-financial and individual performance measures. It bases its judgement over the payment outcome at the end of the performance period on its assessment of the level of stretch inherent in targets Any payment is subject to an additional gateway assessment Malus and clawback conditions apply Awards typically granted as nil-cost options Plan allows for awards with a maximum value of 200% of base salary per financial year Awards typically granted every six months at half the annual level Performance is measured over three years and determined by RoTE and relative TSR measures Awards vest subject to financial underpin and risk gateway Malus and clawback conditions apply 2.5% salary increase for the CEO to 794, % salary increase for the CFO to 480,900 Reported profit before tax replaces ongoing operating profit as primary and sole financial measure accounting for 55% of the total AIP outcome The weighting allocated to the basket of customer measures has been revised upwards from 20% to 25% in line with the Company s strategic objectives and the number of measures has been broadened Nil-cost options to be granted in March and August 2016 at a total annual grant level of 200% of salary Performance conditions as per 2015 awards 2015 pay decisions reflect performance achieved during the year Aligning performance and reward The Committee has considered the performance over 2015, as demonstrated by the achievement of key performance indicators on pages 24 to 25, which marks the third year of good performance for the Group. As a result of this performance, the Remuneration Committee has approved the following incentive outcomes for the Executive Directors. Achievement under the AIP The actual payouts from the AIP this year reflect performance in 2015, with operating profit from ongoing operations ahead of the target set under the AIP, the progress made towards achieving our strategic objectives and the Executives achievement of personal and shared goals. Further details of the assessment of performance against the targets are provided on page 78. Maximum (% of salary) Target (% of salary) Actual (% of salary) Actual ( 000) Chief Executive Officer 175% 105% 145% 1,120 Chief Financial Officer 150% 90% 129% Direct Line Group Annual Report & Accounts 2015

4 Release of value under the LTIP The first award under the 2012 LTIP vested in November The value of the award on vesting, as illustrated below, reflects the significant value generated for shareholders through share price growth and dividends over the three-year period. The value of these awards has been captured across both 2014 and 2015 single figures for the RoTE and TSR elements respectively on page 77 of the implementation report. The total value of the award vesting at the end of the three-year performance period in November 2015, inclusive of shares vesting under both the RoTE and TSR elements, was 1,706,857 to Paul Geddes and 1,033,095 to John Reizenstein. This compares with an increase in the value of the Company of over 2.5 billion plus 1.3 billion returned to shareholders by way of dividends over the same time period. Release of value under the LTIP ( ) Chief Executive Officer Chief Financial Officer Grant 47% 38% Grant 15% Vesting Vesting 0m 0.5m 1m 1.5m 2m Shares under award Dividends Share price growth Strategic report Governance Financial statements Executive Directors shareholding at year end The interests of shareholders and Executive Directors are closely aligned through the Chief Executive Officer and Chief Financial Officer holding Company shares at multiples of salary levels above the share ownership guidelines of 200% of salary. The Executives continue to build on these shareholdings as illustrated below. As at 31 December 2015, the number of shares beneficially held by the Chief Executive Officer and the Chief Financial Officer represented 249% and 280% of their salaries, respectively. Executive Directors shareholding at year end (Number of shares) Chief Executive Officer Chief Financial Officer 47% 38% 15% 0m 0.1m 0.2m 0.3m 0.4m 0.5m Note: 1. Shares held as at 31 December 2015 reflect the impact of the share consolidation on 30 June 2015 in which every 12 existing Ordinary Shares were replaced by 11 new Ordinary Shares, meaning the aggregate number of Ordinary Shares in issue was reduced. For the purposes of this chart, holdings include all vested but unexercised awards, valued on a basis that is net of applicable personal taxes. Executive Directors' total pay explained further in the single figure table on page 77 This chart illustrates the components of total remuneration received in 2014 and 2015, as set out in further detail in the single figure table on page 77. Salaries increased by 2% in 2015, which was the first increase since the Executive Directors salaries were set in September The annual bonus payouts in 2015 were 83% and 86% of the maximum potential for Paul Geddes and John Reizenstein, respectively. As disclosed in the 2014 remuneration report, the single figure of remuneration for 2014 included the vesting outcomes of the last legacy awards under the RBS Group LTIP. Executive Directors total pay ( 000) 6,000 5,000 4,000 3,000 2,000 1, % Chief Executive Officer Chief Financial Officer Salary Pension and Benefits (including all employee share plans) Annual bonus LTIP

5 Directors remuneration report continued Introduction We have prepared this remuneration report in accordance with the requirements of the Companies Act 2006 and The Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 (as amended) (the Regulations ). The report also meets the relevant requirements of the Listing Rules of the Financial Conduct Authority, and describes how the Board has complied with the principles and provisions of the UK Corporate Governance Code relating to remuneration matters. Remuneration tables subject to audit in accordance with the relevant statutory requirements are contained in the annual remuneration report. Annual remuneration report Remuneration Committee members and governance The following list details members of the Remuneration Committee during You can find information about each member s attendance at meetings in the Remuneration Committee report on page 68. You can find their biographies on pages 48 to 49. Committee Chair Priscilla Vacassin Non-Executive Directors Mike Biggs Sebastian James Andrew Palmer Advisers to the Committee The Committee consults with the Chief Executive Officer, the Human Resources Director, and senior representatives of the HR, Risk and Finance functions on matters relating to the appropriateness of all remuneration elements for Executive Directors and Executive Committee members. The Chairman, Chief Executive Officer and the Human Resources Director are not present when their remuneration is discussed. The Committee works closely with the Chairs of the Board Risk Committee and the Audit Committee, including receiving reports from those Chairs regarding the setting of targets and payouts under incentive plans and whether it is appropriate to operate malus and clawback. The Chair of the Audit Committee is a member of the Remuneration Committee; and the Chair of the Board Risk Committee attended Remuneration Committee meetings on three occasions. The Committee retains FIT Remuneration Consultants LLP ( FIT ) as its independent adviser. FIT is a signatory to the Remuneration Consultants Group s Code of Conduct. The Committee appointed FIT when preparing for the IPO and after considering the firm s experience in this sector. During the year, FIT advised on market practice, corporate governance, incentive plan design and target setting, regulations, and other matters that the Committee was considering. FIT does not provide the Company with any other services. The Committee is satisfied that the advice FIT provides is objective and independent. FIT s total fees for remuneration related advice in 2015 were 117,406 exclusive of VAT. FIT charged its fees based on its standard terms of business for providing advice. Allen & Overy LLP, one of the Group s legal advisers, also provided legal advice relating to the Group s executive remuneration arrangements. It also provided the Group with other legal services. Statement of policy implementation in 2016 Executive Directors salaries in 2016 The salary increase awarded to the Executive Directors, effective 1 April 2016, is lower than the average increase awarded to UK employees. Director Position 2016 base salary base salary 000 Annual change in base salary Paul Geddes Chief Executive Officer % John Reizenstein Chief Financial Officer % Annual Incentive Plan 2016 The maximum annual incentive awards which may be paid to Executive Directors have not changed since the IPO. Director Position Maximum annual incentive award for 2016 (% base salary) Deferred under the Deferred Annual Incentive Plan (% bonus) Paul Geddes Chief Executive Officer 175% 40% John Reizenstein Chief Financial Officer 150% 40% Direct Line Group Annual Report & Accounts 2015

6 During 2015, the Committee reviewed the AIP performance measures' weightings and composition. It also reviewed the overall framework's operation to make sure it is still fit for purpose. The review concluded that, whilst the framework successfully linked Executive Directors' variable pay with the Group's performance, in order to further align the Executive Directors interests with those of shareholders and the objectives of the business, the Committee would implement the following changes in 2016: To further align Executive Directors with shareholders, profit before tax will replace ongoing operating profit as the primary financial measure and will account for 55% of the total AIP outcome, increased from 50% As a result of measuring profit before tax, the Committee decided it was no longer necessary to apply a specific weighting to other profit & loss items not reflected in the definition of ongoing operating profit and the allocation of a specific weighting to this element will, therefore, be removed. The Committee will instead consider this in determining the overall level of payouts in its exercise of judgement The weighting allocated to the basket of customer measures will be increased from 20% to 25% in line with the Company s strategic objectives Measures Weighting for 2016 Weighting for 2015 Financial Profit before tax (2015: ongoing operating profit) 55% 50% Other financial measures not reflected in the definition of ongoing operating profit, primarily the performance of the Run-off segment and restructuring costs 0% 10% Strategic Based on a basket of customer measures, including Net Promoter Score and complaints 25% 20% Personal Objectives for each Executive Director, including shared objectives across the Executive Committee 20% 20% Strategic report Governance Financial statements Like previous years, all AIP outcomes will be determined after the Committee determines a payment gateway. To do this, the Committee must be satisfied that it is appropriate to permit a bonus award at all, or at a given level. The gateway involves some subjectivity about performance. This may result in positive or negative moderation of each AIP performance measure or the overall bonus outcome. The list below sets out the gateway criteria for the AIP for There are more criteria than previously. This ensures the Committee considers a broader range of criteria when judging the level of AIP payments. Gateway criteria for the Annual Incentive Plan for 2016 outcomes for Executive Directors Year-on-year changes in profit before tax Quality and sustainability of earnings, referring to reserving, gross written premium, costs and loss ratio, and relevant lead indicators Additional customer context, for example, conduct, experience, brand and franchise health Capital strength and affordability Risk management within risk appetite The Group s relative performance to that of its peers The wider economic environment Exceptional events, such as abnormal weather Any regulatory breaches and/or reputational damage to the Group Committee satisfaction that paying the bonus does not cause major reputational concerns The Committee may also use its discretion to account for additional factors. These include the quality of financial results; the direction of travel of all measures; more widely considering reputation, risk, and audit. In considering such factors, and whether to adjust the overall payouts and/or operate malus and clawback, the Committee receives appropriate input from the Audit Committee and the Board Risk Committee through receiving reports from and discussion with the Chairs of those Committees. Performance conditions for LTIP awards LTIP awards granted in 2016 will continue to be subject to performance against these performance conditions: 60% based on RoTE over a three-year performance period (2016, 2017 and 2018) 40% based on relative TSR performance against the constituents of the FTSE 350 (excluding investment trusts) over a three-year performance period, starting on the date of grant. The starting and closing TSR will be averaged over a three-month period

7 Directors remuneration report continued For these purposes, we use the Group s standard definition for RoTE, subject to such other adjustments as the Committee may consider appropriate. To find out more about how we calculate RoTE, see page 175. The Committee reviewed the performance targets and, in line with its commitment to ensure that awards to Executive Directors would only be payable if significant value has been created for shareholders, decided that there should be no change to targets for 2016 as they remain appropriately stretching following their increase in Performance measure RoTE Relative TSR Vesting for threshold performance 20% of this element of the award Performance required for threshold vesting Awards in 2015 and 2016 Average annual RoTE performance of 14.5% Awards in 2013 and 2014 Average annual RoTE performance of 14.0% Performance required for maximum vesting Awards in 2015 and 2016 Average annual RoTE performance of 17.5% 20% of this element of the award Median Upper quintile Awards in 2013 and 2014 Average annual RoTE performance of 17.0% For the TSR element, there is a straight-line interpolation between threshold and maximum performance, on a ranked basis. For the RoTE element, 40% of the award will vest for RoTE of 15.5% for awards to be made in 2016 (which remains unchanged from 2015). Otherwise, vesting is similar to TSR: a straight-line interpolation occurs from threshold to target, then from target to maximum performance. The LTIP awards will also vest only to the extent that the Committee is satisfied that the outcome of the TSR and RoTE performance conditions reflects the Group s underlying financial performance from the date of grant until vesting. When considering these matters, the Committee will also deliberate on whether there have been any material risk failings. Pension and benefits A pension contribution of 25% of base salary will continue to be paid to both Executive Directors in Benefits comprise providing a company car or car allowance, private medical insurance, life assurance, income protection and health screening. Like all employees, the Executive Directors are also eligible for certain discounted Group products. Non-Executive Directors fees The current fees for the Chairman and Non-Executive Directors were set in 2012 and have not changed since. Fees for 2016 Position 000 Board Chairman fee 400 Basic Non-Executive Director fee 70 Additional fees Senior Independent Director fee 30 Chair of Audit, Board Risk and Remuneration Committees 30 Chair of CSR Committee 10 Member of Board Committee (Audit, Board Risk or Remuneration) 10 Member of Board Committee (CSR or Nomination) 5 No additional fees are paid for membership or chairmanship of the Investment Committee. External directorships The Company encourages Executive Directors to accept, subject to the Chairman's approval, an invitation to join another company's board outside the Group in a non-executive capacity. This recognises that such wider experience is valuable. Executive Directors can retain any remuneration from their non-executive appointment. Executive Directors are generally limited to accepting one external directorship. John Reizenstein is a trustee and Director of Farm Africa, for which he receives no fees. Otherwise, the Executive Directors do not currently hold any external directorships Direct Line Group Annual Report & Accounts 2015

8 Implementing policy and pay outcomes relating to 2015 performance Single figure table (audited) Salary 1 Benefits 2 Annual bonus 3 Long-term incentives 4,5,6,7 All employee share plans 8 Pension Total Paul Geddes ,120 1,000 2,712 3, ,815 5,356 John Reizenstein ,642 1, ,844 2,227 Notes: 1. The Company operates a flexible benefits policy and salary is reported before any personal elections are made. 2. Benefits include a company car or allowance; private medical and income protection insurance. 3. Includes amounts earned for performance during the year, but deferred for three years under the Deferred Annual Incentive Plan ( DAIP ). For more information, see page 83. These deferred awards are not subject to any conditions, except continuous employment. However, awards remain available for malus and clawback. 4. The expected vesting outcome figures for the RBS Group LTIP awards granted in 2012 and reported in 2014 have been updated. These updates are based on the actual vesting share price of on 9 March 2015, compared to the three-month average share price of used in reporting this figure in the 2014 remuneration report. This results in an adjusted reportable increase of approximately 408,958 for Paul Geddes and 92,016 for John Reizenstein, with a corresponding increase to the single figure for 2014 reflected in the table above. 5. The expected vesting outcome figures for the RoTE portion of the awards granted under the Direct Line Group LTIP in 2012 and reported in 2014 have also been updated. These updates are based on the actual vesting of the RoTE portion of the awards and a share price of on 9 November 2015, compared to the three-month average share price of used in reporting this figure in the 2014 remuneration report. The revised figures reflect the impact of the share consolidation on 30 June 2015 and actual number of dividends accrued on this portion of the award at vesting. This results in an adjusted reportable increase of approximately 323,814 for Paul Geddes and 195,998 for John Reizenstein, with a corresponding increase of the single figure for 2014 reflected in the table above. 6. The long-term incentive figures for 2015 include the estimated vesting outcome for the RoTE portion of the awards made under the Direct Line Group LTIP in March and August 2013 as the performance period under this element is now complete. In line with the criteria set at the time of grant, this has been assessed by referring to RoTE performance during 2013, 2014 and 2015 in respect of 56.4% of the shares under award (being a 94% vesting outcome of shares relating to the RoTE element). For these purposes, an RoTE figure of 17.6% has been used, including the impact of the International division during 2015 until the completion of its sale in May Had the RoTE figure of 18.5% from ongoing operations been used for the purposes of determining LTIP vesting, then full vesting under the RoTE element would have been achieved. The corresponding values under long-term incentives, including the value of dividends accrued to 31 December 2015, are 1,947,016 for Paul Geddes and 1,178,450 for John Reizenstein based on a three-month average Company share price to 31 December 2015 of Any shares vesting under the Direct Line Group LTIP granted in 2013 will not be delivered until the end of the applicable vesting periods in March and August The long-term incentive figures for 2015 reflect the actual vesting under the TSR element of awards made under the Direct Line Group LTIP in November In line with the criteria set at the time of grant, this has been assessed by referring to TSR performance to the end of the performance period of 15 October A total of 40% of the shares under award (being the maximum number of shares relating to the TSR element) vested. The corresponding values under long-term incentives, including the value of dividends on vesting, are 765,407 for Paul Geddes and 463,271 for John Reizenstein using the share price on 9 November 2015 of Includes the value of matching shares under the SIP. Strategic report Governance Financial statements Each Executive Director has confirmed that they have not received any other items in the nature of remuneration, other than those already disclosed in the single figure table

9 Directors remuneration report continued Annual Incentive Plan outcomes for 2015 The Committee established target performance levels at the start of the year. However, like last year, the Committee did not set a formal threshold to maximum range for performance measures. Instead, the Committee believed it more appropriate to carefully consider performance relative to AIP targets and to assess over or underperformance by judging overall corporate performance at the year-end. To be transparent with our shareholders, we are disclosing more information this year about bonus payout levels. As such, in the table below, we have included the remuneration targets set at the beginning of the year and performance achieved under the financial measures. We have also explained the performance achieved against the non-financial measures which remain commercially sensitive to disclose. The chart below illustrates the Committee s assessment of the level of achievement under the AIP. The outcomes reflect strong performance during the year, particularly in terms of the financial measures, as highlighted in the Group highlights and Chairman s statement on pages 2 to 3 and 10 to 11 respectively. Notwithstanding this success, the Committee felt that it was appropriate, within the wider economic context and our continued ambitions for improvement, to moderate the achievement under the AIP by 4.4% for each Executive Director, from 87.4% to 83% for Paul Geddes and from 90.4% to 86% for John Reizenstein, as illustrated in the chart below. Measures Weight (as a % of max award) Target performance ( m) Actual performance ( m) Performance Assessment Achievement against performance measures 0% Vesting Target 60% Vesting Maximum 100% Vesting Ongoing operating profit 50% Maximum 100% Financial Other financial measures not reflected in the definition of 10% ongoing operating profit 1 Above target 94% Strategic A basket of key customer measures 20% See narrative Above target 75% Personal Personal objectives including shared objectives amongst all Executive Committee members Paul Geddes John Reizenstein 20% See narrative 20% See narrative Above target Above target 65% 80% Director Unadjusted achievement under the 2015 AIP Adjusted achievement under the 2015 AIP Paul Geddes 87.4% of maximum 83% of maximum John Reizenstein 90.4% of maximum 86% of maximum Note: 1. Profit and loss items excluded from ongoing operating profit, primarily the performance of the Run-off segment and restructuring costs and other one-off costs Direct Line Group Annual Report & Accounts 2015

10 Financial element (60% weighting) While there is no pre-set scale around target, the Committee used a range of % of target as an initial reference point to consider vesting levels for the financial measures. The Committee will consider the appropriate range each year and as such this scale may not be used in subsequent years. Having considered the actual results against these reference points, the Committee agreed that the level of performance warranted the level of payouts shown in the chart above. Strategic element (20% weighting) As described elsewhere in this Annual Report, during 2015 we have continued to invest in improved customer propositions and on improving the customer experience and reducing complaints. This has contributed to an increase in Net Promoter Scores across a number of measures, as well as a reduction in complaints. Overall, a strong performance on the basket of customer measures considered by the Committee has led to an above target payout of 75% of the maximum available under this element. Personal element (20% weighting) This element focuses on the individual's personal objectives as well as shared objectives with other Executive Committee members, set by the Remuneration Committee. Both Executives demonstrated strong leadership on various strategic initiatives during the year. As outlined in the Board Chairman s letter on pages 10 to 11, during 2015 the Group progressed on delivering its strategic objectives and building future capability in line with its mission. These objectives also form part of the Executives personal and shared objectives and, in acknowledgement of progress made during the year, the Committee determined that Paul Geddes and John Reizenstein should each receive awards ahead of an on-target level of performance, of 65% and 80% of the maximum available under this element, respectively. In determining the level of personal achievement for the Chief Financial Officer, the Committee was particularly mindful to recognise the successful completion of the sale of the International business during 2015, in which he played a key role. Whilst the agreement was substantially complete in 2014, the Committee decided to wait until all regulatory approvals had been received during 2015 before recognising this exceptional personal performance. Strategic report Governance Financial statements We anticipate including similar disclosures next year in respect of the 2016 AIP outcome which, consistent with market practice, are not included on a prospective basis on the basis of commercial sensitivity. Consequently, the annual incentive awards for Executive Directors for the financial year ended 31 December 2015 were as follows: Maximum (% of salary) Target (% of salary) Actual (% of salary) Actual 000 (including cash and deferred elements) Paul Geddes, CEO 175% 105% 145% 1,120 John Reizenstein, CFO 150% 90% 129% 602 Non-Executive Directors Fees were the only remuneration paid to Non-Executive Directors in 2014 and Non-Executive Directors may also claim for reasonable travel and subsistence expenses, in accordance with the Group s travel and expenses policy, and, where these are classified as taxable by HMRC, they have been shown under Benefits below. The Non-Executive Directors receive no other benefits. Director 2015 Fees Benefits Total Fees Benefits 000 Total Michael Biggs Glyn Jones Jane Hanson Sebastian James Andrew Palmer Clare Thompson Priscilla Vacassin Notes: 1. Non-Executive Directors are not eligible to participate in any of the Group's bonus or share incentive schemes, or to join any Group pension scheme. 2. The values shown under benefits above comprise the value of travel and subsistence expenses reimbursed by the Company (including any potential gross-up for tax and NIC due). Similar amounts of taxable benefits have also been identified in respect of the 2012 and 2013 financial years of 4,031 for Mike Biggs and 35,516 for Jane Hanson which have not previously been included in the respective accounts but are noted here following HMRC s clarification of the Directors' permanent place of employment for tax purposes issued in Glyn Jones stepped down from the Board on 13 May Andrew Palmer was appointed as the Senior Independent Director with effect from 13 May Priscilla Vacassin was appointed to the Nomination Committee with effect from 13 May

11 Directors remuneration report continued Percentage change in Chief Executive Officer's pay for 2014 to 2015 The table below shows the Chief Executive's year-on-year percentage change in salary, taxable benefits and bonus, compared to the average pay for all other UK employees. Salary 1 Benefits 2 Bonus (including deferred amount) 3 Chief Executive Officer 2% 5% 12% All UK employees 3.6% 11% 8% Notes: 1. Based on the change in average pay for UK employees employed in the year ended 31 December 2015 and the year ended 31 December Salaries are not adjusted for number of working hours and the increase therefore partly reflects the increase in working hours for some employees during the year. 2. There were no changes in benefits provision between 2014 and The value increase shown above for all employees is mainly due to an increase in the average value of matching shares provided to employees taking part in the BAYE plan over this period. 3. Includes average amounts earned under the AIP and, for employees other than the Chief Executive Officer, other variable incentive schemes, including monthly and quarterly incentive schemes operated in certain parts of the Group. When determining Directors remuneration, the Committee considers employment conditions elsewhere in the Group. The Committee particularly reviews overall pay and bonus decisions in aggregate for the wider Group. Through the Chief Executive Officer and the HR Director the Committee may, as required, consider input from employee groups, such as the Employee Representative Body. Distribution statement This chart shows the overall pay expenditure across all Group employees compared with the total dividend value paid to shareholders for 2014 and % change: 66.0% % change: -5.3% % change: -0.8% y 15y Dividend ( m) 14y 15y Overall expenditure on pay (including International division) ( m) 14y 15y Overall expenditure on pay (excluding International division) ( m Note: There have been no share buy-backs since the IPO. The overall expenditure on pay has been taken from note 11 to the consolidated financial statements. Therefore, consistent with market practice, it has not been calculated in a manner consistent with the single figure in this report Direct Line Group Annual Report & Accounts 2015

12 Historical performance of Total Shareholder Return This graph shows the Company s TSR since the Company s shares began trading on the London Stock Exchange in October 2012 against the FTSE 350 Index (excluding investment trusts) over the same period. This peer group is the same used for measuring relative TSR under the LTIP. Total Shareholder Return October December December December December 2015 Strategic report Governance Financial statements Direct Line Group FTSE 350 (excluding investment trusts) The table below shows historical levels of the Chief Executive Officer s pay between 2012 and It also shows vesting of annual and long-term incentive pay awards as a percentage of the maximum available opportunity. Chief Executive Officer Single figure of total remuneration '000 Annual bonus payout (% of maximum) Long-term incentive vesting (% of maximum) ,815 83% 96% ,356 75% 88% ,536 63% 55% ,908 65% 30% Notes: 1. Based on actual vesting under the 2010, 2011 and 2012 RBS Group LTIP. The value included in the single figures in respect of these awards is 205,000 in 2012, 728,000 in 2013 and 2,437,428 in The 2014 single figure has been revised to reflect the actual vesting of the 2014 awards under the 2012 RBS Group LTIP and actual vesting under the RoTE element of the Direct Line Group LTIP granted in For 2015, the estimated vesting of the RoTE portion of the Direct Line Group LTIP granted in March and August 2013 has also been included at a value of 1,947,016. The vesting under the RoTE element of these awards has been calculated with reference to an adjusted 2015 RoTE of 17.6% as opposed to 18.5% in order to reflect the impact of the International division during Any shares vesting under the Direct Line Group LTIP granted in 2013 will not be delivered until the end of the applicable vesting periods in March and August However, they have been included in the single figure, as the performance period in respect of the RoTE portion has now been completed

13 Directors remuneration report continued Annual General Meeting voting outcomes The table shows the percentage of shareholders voting for or against, and the percentage of votes withheld in relation to the resolution to approve the Directors annual remuneration report, which was put to the 2015 AGM and the resolution to approve the Directors remuneration policy, which was put to the 2014 AGM. For Against Number Percentage Number Percentage Number of votes withheld (abstentions) Percentage of votes withheld (abstentions) Approval of Directors remuneration report (2015) 1,108,103, % 44,283, % 9,502, % Approval of Directors remuneration policy (2014) 1,064,002, % 26,743, % 1,945, % Note: The percentages of votes for and against are expressed as a percentage of votes cast, excluding votes withheld. The percentage of votes withheld is expressed as a percentage of total votes cast, including votes withheld. The Committee is grateful for the strong vote in favour of the Directors annual remuneration report in The Committee continues to communicate with investors on developments in the remuneration aspects of corporate governance generally and changes to the Company s executive pay arrangements in particular. Shareholdings This table sets out the share ownership guidelines and share ownership levels: Position Share ownership guideline 1 (% of salary) Value of shares held at 31 December ,3 (% of salary) Chief Executive Officer 200% 249% Chief Financial Officer 200% 280% Notes: 1. Executive Directors are expected to retain all the Ordinary Shares they obtain from any of the Company s share incentive plans until they achieve a shareholding level that is equal to 200% of base salary. This is calculated after any disposals necessary to pay personal taxes on acquiring such Ordinary Shares. 2. For these purposes, holding Ordinary Shares will be treated as including all vested but unexercised awards, valued on a basis that is net of applicable personal taxes. 3. Shares held as at 31 December 2015 reflect the impact of the share consolidation on 30 June 2015 in which every 12 existing Ordinary Shares were replaced by 11 new Ordinary Shares, meaning the aggregate number of Ordinary Shares in issue was reduced. This table shows each Executive Director's total share interests. Director Share plan awards subject to performance conditions 2 Share plan awards not subject to performance conditions 3 Share plan interests at 31 December 2015 Beneficial share interests 1 Share plan interests vested but unexercised Share plan interests exercised or released 4,5 Shares held at 31 December ,7 Shares held at 31 December 2014 restated for share consolidation Shares held at 31 December 2014 Paul Geddes 1,626, ,453 1,201, , , ,472 John Reizenstein 984, , , , ,496 89,231 97,352 Notes: 1. Shares held as at 31 December 2014 have been restated to reflect the impact of the share consolidation on 30 June 2015 in which every 12 existing Ordinary Shares were replaced by 11 new Ordinary Shares, meaning the aggregate number of Ordinary Shares in issue was reduced. These figures have been provided to facilitate a like-for-like comparison with shares held as at 31 December This includes awards under the Direct Line Group LTIP. As described in the notes to the single figure table, 94% of awards made under the Direct Line Group LTIP in March and August 2013 that are subject to the RoTE performance condition measured to 31 December 2015 are expected to vest. This has been calculated with reference to an adjusted 2015 RoTE of 17.6% as opposed to 18.5% in order to reflect the impact of the International division during The corresponding values under long-term incentives, including the value of dividends accrued to 31 December 2015, are 1,947,016 for Paul Geddes and 1,178,450 for John Reizenstein based on a three-month average Company share price to 31 December These shares will be delivered to Executive Directors in March and August Includes matching shares held under the SIP which are subject to forfeiture and deferred shares under the Direct Line Group DAIP. For more information, see page % of the shares awarded to Paul Geddes under the Direct Line Group DAIP in March 2013 vested during the financial year. This is consistent with the policy at RBS Group. These vesting shares and related dividend accrual shares were exercised by Paul Geddes on 30 March 2015 (51,060 shares at ). Additionally, under the RBS Group LTIP 2012, 717,300 shares vested to Paul Geddes and 161,392 shares vested to John Reizenstein on 9 March 2015 (share price ). 5. Paul Geddes exercised an award granted on 7 November 2012 under the Direct Line Group LTIP on 9 November 2015 as shown on page 84 (432,773 shares). The Direct Line Group DAIP and LTIP plan rules provide that all dividends accruing in the vesting period (or until exercise for awards made in 2012 and 2013) will be added on vesting. The figure of exercised shares accordingly includes all dividends that were accrued in respect of the 2012 LTIP awards. 6. Includes holdings of connected persons, as defined in section 96B(2) of the Financial Services and Markets Act 2000, and free and partnership shares held under the SIP which are not subject to forfeiture and considered beneficially owned. 7. Beneficial share interests include partnership shares John Reizenstein purchased under the SIP and free shares held by both Executive Directors under the SIP. At 9 March 2016, the number of shares beneficially held by John Reizenstein has increased to 183,575. There was no change to the number of shares held by Paul Geddes Direct Line Group Annual Report & Accounts 2015

14 The table shows the Non-Executive Directors' beneficial interests in the Company s shares. Director Shares held at 31 December ,2,3 Shares held at 31 December 2014 restated for share consolidation 4 Shares held at 31 December 2014 Mike Biggs Jane Hanson 26,190 26,190 28,571 Glyn Jones 3 70,159 61,921 67,551 Andrew Palmer 10,475 10,475 11,428 Clare Thompson 35,220 30,960 33,775 Priscilla Vacassin 35,220 30,960 33,775 Sebastian James Notes: 1. There were no changes to the number of shares held by Directors between the year end and the date of this report. 2. Includes holdings of connected persons, as defined in section 96B(2) of the Financial Services and Markets Act Glyn Jones stepped down from the Board on 13 May 2015 and this represents his holding at that date. 4. Shares held as at 31 December 2015 reflect the impact of the share consolidation on 30 June 2015 in which every 12 existing Ordinary Shares were replaced by 11 new Ordinary Shares, meaning the aggregate number of Ordinary Shares in issue was reduced. Strategic report Governance Financial statements Direct Line Group share awards Direct Line Group Deferred Annual Incentive Plan awards made in 2015 This table details the awards made to Paul Geddes and John Reizenstein under the Direct Line Group DAIP relating to the bonus in respect of Grant date Paul Geddes Three-day average share price for grant of awards Face value of award No. of share options as at 1 January 2015 No. of share options granted during the year 1 No. of share options vested during the year 2 No. of share options adjusted for share consolidation 3 No. of dividend shares acquired at vesting No. of share options No. of share held at options 31 December exercised Vesting date 28-Mar ,004 81,406 37,704 3,143 7,359 51,060 34,562 1-Jun-13 to 28-Mar Mar , ,241 11, , Mar Mar , ,186 10, , Mar , ,186 37,704 24,679 7,359 51, ,453 John Reizenstein 28-Mar ,999 68,462 5,706 62, Mar Mar ,000 68,210 5,685 62, Mar Mar ,200 62,774 5,232 57, Mar ,672 62,774 16, ,823 Notes: 1. Awards are granted as nil-cost options. 2. The terms on which Paul Geddes 2012 bonus outcome was deferred meant that 60% of the outcome was deferred, with deferral split broadly evenly between deferral into deferred cash and deferred shares, with phased vestings of the deferred amounts over the three-year deferral period. 3. Awards adjusted on 30 June 2015 as a result of the share consolidation in which every 12 existing Ordinary Shares were replaced by 11 new Ordinary Shares. 4. Exercised on 30 March 2015 at , resulting in an aggregate gain of 165,

15 Directors remuneration report continued Direct Line Group Long-Term Incentive Plan awards made in 2015 This table details the Directors interests in the Company s LTIP. For all LTIP awards, 20% of the awards granted would vest if the minimum performance was achieved Grant date Three-day average share price for grant of awards Face value of award No. of options at 1 January No. of options granted during the year 2 No. of options vested during the year 3 No. of options lapsed for performance 4 No. of options adjusted for share consolidation 5 No. of dividend shares acquired at vesting No. of options exercised No. of options held at 31 December 2015 Vesting date Paul Geddes 07-Nov , , ,458 38,437 32, , , Nov Mar , , , , Mar Aug , ,439-29, , Aug Mar , ,285-26, , Mar Aug , ,888-21, , Aug Mar , ,254-19, , Mar Aug , , , Aug-18 1,691, , ,458 38, , , ,773 1,626,495 John Reizenstein 07-Nov , , ,145 23,265 19,583 69, , Nov Mar , , , , Mar Aug , , , , Aug Mar , , , , Mar Aug , , , , Aug Mar , , , , Mar Aug , , , Aug-18 1,024, , ,145 23,265 96,954 69,796 1,246,395 Notes: The Company s share price on 31 December 2015 was and the range of prices in the year was to These awards take the form of nil-cost options over the Company s shares and are subject to performance conditions to be assessed by the Committee. Awards granted before 2014 accrue dividend entitlements until the date of transfer of shares. Awards granted from 2014 accrue dividend entitlement from the grant date to the date on which an award vests. 2. The RoTE targets for awards granted in 2015, applying to 60% of the award, were 14.5% for 20% vesting, 15.5% for 40% vesting and 17.5% for full vesting. A straight-line interpolation occurs from threshold to target, and then from target to maximum performance. The remaining 40% of each award is based on TSR performance conditions, which are the same as noted on page The closing market price on the date of the vesting of the award was Awards under the LTIP vested at 89.2% of the maximum potential on 9 November Awards lapsed on 30 June 2015 as a result of the share consolidation in which every 12 existing Ordinary Shares were replaced by 11 new Ordinary Shares. The Company s policy is to issue awards twice a year, after the Group announces its full and half-year results. The value of each grant of awards is set at 50% of the normal annual policy level. This means the total combined face value of awards to each Executive Director during the year equates to 200% of their base salary paid in the year Direct Line Group Annual Report & Accounts 2015